This year, taxpayers are expected to receive record-breaking refunds. Good news, right?! Well, not exactly. What this really means is that taxpayers are giving even more of their hard-earned money to the government which holds it–interest free–until the money is claimed. This is hardly a sound financial move.
These days millions of taxpayers are handing out a voluntary tax to the government, by withholding more from their paychecks than necessary. These citizens might get overexcited each year to receive their tax return, not realizing that the money they are receiving would be better off even saved in their low-interest bank accounts. Giving extra money to an interest-free account really means you are wasting any money you could earn from a return on an investment.
It makes sense to periodically review how much of a refund you are getting. If your refund is generally high, you should consider putting your money to better use. To make the most out of your money, you probably should fill out a new W-4 form. This is a form you filled out for your employer stating what type of deductions you agreed to. Maybe you deducted more from your paycheck previously than you currently need to. Take special note if you are claiming any relatively new tax credits on your return. Withholding amounts on tax returns change each year depending upon changes in tax rates. However, withholding amounts do not account for new or increased tax credits. This could be why your refund has gone up in the last few years.
If you do reduce your withholdings with a new W-4, make sure to be diligent about setting aside the difference from each paycheck, saving it or putting it towards investments. You must be the one to take control over your money–instead of forcing the government to save it for you.